Bloomberg News

M-real Could Sell Assets to Pay Back Maturing Bond

March 15, 2012

(Corrects first paragraph of March 14 story to remove CEO attribution on debt and asset sales.)

M-real Oyj (MRLBV), which has lost money in six of the past seven years, may sell profitable assets to pay off the debt that made it Finland’s worst-performing paper company last year.

“We don’t rule out any divestments,” Chief Executive Officer Mikko Helander said yesterday in an interview at the company’s Espoo, Finland-based headquarters. “Our strategy makes it possible to make moves if needed.”

M-real has sold assets for 2.2 billion euros ($2.9 billion) since 2006 as it trims its paper and pulp unit to focus on its more profitable paperboard division. The company, which faces a one-year deadline to pay back a maturing 500 million-euro bond, could consider selling its paper and pulp mill in Husum, Sweden, the CEO said.

“Should a suitable proposal surface, we’re open for discussions,” on a sale of Husum, Helander said. M-real isn’t currently in talks with a buyer and “it’s not a problem for us if Husum continues to be a part of us,” he said. The mill had a 600 million-krona ($89 million) profit in 2010.

Other assets most likely to find buyers include part of M- real’s 32 percent stake in pulp producer Metsae Fibre Oy and its 2.5 percent share in energy producer Pohjolan Voima Oy, according to Antti Viljakainen, an analyst at Helsinki-based equity research company Inderes Oy.

Self-Sufficient

M-real could reduce its stake in Metsae Fibre because the company is already exceeding its goal of being fully self- sufficient in pulp, the CEO said. The company is less likely to sell its stake in Pohjolan Voima, as it currently produces only 65 percent of its energy demand, the CEO said.

M-real’s stake in Metsae Fibre could fetch as much as 440 million euros and the Husum mill is worth about 326 million euros, according to estimates by Henri Parkkinen, an analyst at Pohjola Bank Oyj.

The European paper industry is in decline, hurt by oversupply in the newsprint market and competition from online media. M-real sold the bond in March 2006 and started three months later a review to help restore profitability.

M-real, which had interest-bearing liabilities of 1.14 billion euros at the end of last year, lost 48 percent of its stock market value in 2011. Its listed Finnish peers Stora Enso Oyj (STEAV) and UPM-Kymmene Oyj (UPM1V), both based in Helsinki, lost 40 percent and 36 percent respectively. M-real’s net debt as a percentage of equity was 113 percent at the end of last year compared with 54 percent for Stora Enso and 55 percent for UPM-Kymmene, according to data compiled by Bloomberg.

Bond Price

The price of M-real’s seven-year 2013 bond rose to 103.72 today, the highest since Aug. 3. The shares, which jumped 5.3 percent yesterday, were unchanged at 2.18 euros at 5:29 p.m. in Helsinki trading.

The packaging market will grow by about 3 percent annually, driven mainly by emerging markets, according to research association Pira. CEO Helander said he agreed with that growth estimate.

“Order inflows for cartonboard have normalized already from the low levels at the end of last year”, he said. The slump in 2011 was probably caused by inventory reduction as underlying demand has not waned, he said.

M-real is specializing in high-end consumer packaging cartonboard and its annual deals with brand owners including, Nestle SA (NESN) and Unilever NV (UNA), make up “about 60 percent” of the paperboard unit’s revenue, said Helander.

“One of the reasons we have focused on cartonboards of the very highest quality is that market entry is difficult in this segment,” he said. “These high-quality cartonboards are not made of eucalyptus pulp but superior North European raw materials.”

To contact the reporter on this story: Kasper Viita in Helsinki at kviita1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net


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